Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

Will you position size safely and consistently?
You must consistently take your buy signals based on preplanned position sizing
and not out of desperation or unfounded hope. One of the biggest pitfalls of new
traders is trading too large due to overconfidence. Your position sizing must be
consistent as you take your buy signals. Each position size must be inside the
range of how much you are willing to risk on any one trade.
You can risk more capital on the best setups based on the risk/reward ratio and
probabilities, but that may mean that you risk losing 2% of your capital when
you usually risk 1%. It doesn’t mean risking half or all of your capital on one big
option or futures trade; that is a recipe for eventual ruin.
Can you resist adding to a losing trade?
Technical traders shouldn’t have the same problems as fundamental traders. As a
stock drops lower and lower, it looks like a better value for an investor, but it
looks like a downtrend to a trader. All it takes are a few times when a trader
finds themselves on the wrong side of a strong trend, adds to the losing trade,
and finds themselves in the middle of financial and emotional ruin. A trader

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should trade small when losing and avoid amplifying their losses.
Will you limit your risk exposure?
Risking a 1% loss on any one trade is a great way to begin your risk
management planning, but you also must consider how many trades you have at
any one time, as well as their correlations to each other.
- How many entry signals can you take before you can’t add any more risk?
- When should you stop taking new entry signals?
- Will you only expose your trading capital to three trades at any one time?
- Will you limit your total risk exposure to three at a time if the trades are
correlated positions, like three tech stocks?
- Would you expand to five total positions if they are not closely correlated like
trades in oil, gold, the U.S. Dollar, the S&P 500, and a tech stock?
You amplify your risk when you have multiple positions in the same sector or all
in stocks. You can diversify your risk if you are in different markets like bonds,
metals, energy, currencies, and agricultural commodities that generally don’t
move in the same direction at the same time. Study your markets and decide on
the appropriate risk based on current correlations. Understand that correlations
can change over time and during different market conditions.